NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'AA+' rating to New York City Municipal
Water Finance Authority's (NYW) water and sewer system second general
resolution revenue bonds fiscal 2017 series CC, consisting of the
following:

--Approximately $300 million fiscal 2017 subseries CC-1;

--Approximately $100 million fiscal 2017 subseries CC-2.

The Rating Outlook is Stable.

The fiscal 2017 series CC bonds are scheduled for competitive sale
November 30. Proceeds will refund outstanding parity bonds, fund a
portion of NYW's ongoing capital improvement program and pay costs of
issuance.

SECURITY

The bonds are special obligations of NYW issued under the SGR and
payable solely from and secured by a subordinate lien on gross revenues
of NYW. The SGR bonds currently being issued will not have a debt
service reserve fund (DSRF).

KEY RATING DRIVERS

REGIONAL PROVIDER OF AN ESSENTIAL SERVICE: The system provides an
essential service to an exceptionally large, diverse and economically
important service area. The system benefits from an abundant,
high-quality water supply that is approximately 90% exempt from
expensive filtration requirements and transmission costs.

DEMONSTRATED RATE-RAISING WILLINGNESS: Strong financial management and a
proven ability and willingness to raise rates are reflected in
consistently solid financial results, despite continued volatility in
consumption. The New York City Water Board's (the water board)
independent rate-setting authority remains an important consideration.

HIGHLY LEVERAGED SYSTEM: Debt levels are high as a result of
historically having to comply with environmental mandates and maintain a
large urban system and its aging assets. Declining but still sizeable
debt issuances programmed into the current capital plan will keep debt
levels elevated for the long term.

MAINTENANCE OF SUFFICIENT RATES: New York City Municipal Water Finance
Authority's inability to establish rates sufficient to ensure the
continuation of strong financial margins and currently robust debt
service coverage (DSC) levels on senior and subordinate lien obligations
would be viewed negatively.

--Ownership of system revenues by the bankruptcy-remote New York Water
Board, which sets rates independently without city council approval;

--Revenues collected in a lockbox structure controlled by the trustee
and used to pay debt service of FGR and SGR bonds before operations and
maintenance (O&M) expenses.

While these layers of legal protection do not completely shield FGR and
SGR bondholders from the operational risks of the city's massive water
and sewer enterprise as well as other city government operations, they
ensure that net revenues will not be diverted to general city operations.

Annual debt service obligations are consistently funded well in advance
of scheduled payment dates, allowing the early set-aside of funds to
serve as an additional reserve. Only after monthly required deposits
under the SGR are satisfied and held by NYW's trustee are funds released
from the lockbox structure to pay O&M expenses.

STRONG FINANCIAL AND DEBT MANAGEMENT

NYW's strong financial management and conservative budgeting continue to
yield sound financial metrics, despite ongoing volatility in consumption
over the last several years and continued growth in debt service
obligations. FGR and SGR DSC from net operating revenues remained strong
in fiscal 2016, staying at 5.20x on an all-in basis. Reflecting the
gross lien on system revenues, DSC exceeded 32x on FGR bonds and 7x on
both liens combined. The trend of favorable operating results reflects
primarily the authority's continued ability and willingness to raise
rates and realize positive budget variances as a result of conservative
budgeting practices.

Liquidity has also steadily grown in recent years to a level more
consistent with NYW's rating. Unrestricted cash and investments together
with O&M reserves increased to nearly 340 days of operations in fiscal
2016, almost four times the amount on hand at the close of fiscal 2010.
NYW's prudent practice of carrying forward and applying any operating
surplus generated in the prior year to the payment of debt service in
the coming fiscal year prevents the build-up of more robust cash
balances but preserves rate flexibility. Fitch continues to view this
strategy favorably. The net projected surplus generated in fiscal 2016
(measured on a cash basis) totaled $1.02 billion, about even with the
prior year and up from the $985 million generated in fiscal 2014.

The authority implemented moderate rate increases of 3.4% and 3.0% in
fiscals 2015 and 2016, respectively, following several years of more
sizeable increases. For fiscal 2017, the authority adopted a modest 2.1%
rate increase, its lowest increase in 16 years. However, a legal
challenge by a small number of ratepayers followed by a recent court
ruling ultimately denied the water board's implementation of the fiscal
year 2017.

Fitch does not expect the court ruling will have an adverse impact on
the financial performance of NYW for the current fiscal year given its
conservative budgeting, ongoing ability to generate sizeable operating
surpluses and the relatively small size of the proposed increase. The
water board is currently appealing the court's decision. Despite the
continued escalation in rates, the average monthly residential bill
relative to median household income levels for the service area remains
affordable in comparison to utilities of other major cities.

PROJECTED FINANCIAL RESULTS REMAIN SATISFACTORY

Financial projections through fiscal 2021 are based on what Fitch
believes to be reasonable assumptions. The forecast generally assumes
the continuation of manageable rate hikes and incorporates sizeable
annual debt offerings along with a 1.5% decline in consumption in each
of fiscal 2016 through fiscal 2019, and by 1% in fiscals 2020 and 2021.
As a result, all-in DSC from net revenues is projected to remain at a
strong level of no less than 1.9x through the current planning period
(3.3x on a gross coverage basis) and annual surpluses are forecast to
remain in excess of $950 million, which will continue to be applied to
subsequent year's annual debt service obligations and additional amounts
are planned for the defeasance of future bond maturities.

LEVERAGED SYSTEM

The capital program for fiscal years 2017-2025 is significant, estimated
at $15.9 billion. While costly mandated regulatory projects have trended
downward to a more manageable level of about 25% of total projected
capital commitments compared with an average of about 77% over the prior
decade, funding of non-mandated projects, particularly water treatment
and distribution-related upgrades, has accelerated since 2014. Funding
for the capital program will continue to come almost entirely from
long-term debt issuance and an extensive CP program. NYW's current
forecast shows additional bond issues through fiscal 2021 totaling $8.6
billion, or an annual average of approximately $1.7 billion.

Debt levels are high and escalation beyond what is currently forecast
could ultimately pressure NYW's rating. Debt-to-net plant now stands at
about 106%, and, measured on a per capita basis, leverage approximates
nearly $3,300. By comparison, Fitch's median ratios for the rating
category for debt-to-net plant and debt per capita are 47% and $577,
respectively. Fitch believes the demonstrated commitment to raising
rates as well as management's conservative budgeting will be key to
preserving operating margins and meeting the sizeable debt service costs
included in NYW's financial forecast.

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